Exceeds Guidance on Cost Savings
Initiatives
GrafTech International Ltd. (NYSE:GTI) today announced financial
results for the fourth quarter and full year ended December 31,
2014.
2014 Fourth Quarter
Review
- Net sales were $260 million, a decrease
of 16 percent, compared to $309 million in the same period of the
prior year.
- Reported net loss was $(83) million, or
$(0.61) per diluted share, compared to reported net loss of $(28)
million, or $(0.21) per diluted share in the same period of the
prior year. These included special charges1 (after tax) of $91
million in the fourth quarter of 2014 and special charges (after
tax) of $24 million in the fourth quarter of 2013.
- Adjusted net income*, which excludes
special charges, was $8 million, or $0.06 per diluted share, in the
fourth quarter of 2014, as compared to adjusted net loss* of $(4)
million, or $(0.03) per diluted share, in the fourth quarter of
2013.
- EBITDA*, which excludes special
charges, was $37 million, an increase of 13 percent, as compared to
$33 million in the same period of the prior year.
- Operating cash flow was $38 million in
the fourth quarter of 2014 and available liquidity at year-end was
more than $300 million.
2014 Full Year Review
- Net sales were $1,085 million, a seven
percent decline compared to $1,167 million in 2013.
- Industrial Materials segment revenue
was $840 million, a decrease of eight percent compared to 2013
primarily due to the realization of lower average graphite
electrode prices.
- Engineered Solutions segment revenue
was $245 million, a reduction of five percent versus 2013 due
primarily to decreased volumes in the advanced consumer electronics
market.
- Reported net loss of $(285) million, or
$(2.10) per diluted share, compared to a reported net loss of $(27)
million, or $(0.20) per diluted share, in 2013. These included
special charges (after tax) of $276 million in 2014 and special
charges (after tax) of $38 million in 2013.
- Adjusted net loss*, which excludes
special charges, was $(9) million, or $(0.07) per diluted share, in
2014, as compared to adjusted net income* of $10 million, or $0.08
per diluted share, in 2013.
- EBITDA* was $121 million in 2014, as
compared to $144 million in 2013. The decline was largely driven by
lower realized pricing in the Company's Industrial Materials
segment.
- Net cash provided by operating
activities was $121 million, an improvement of $4 million
year-over-year.
- Net debt* was $512 million at year-end,
a $28 million reduction from year-end 2013 due to effective working
capital management.
"Over the past 15 months, we have been driving important change
throughout the organization to build sustainable operating leverage
and dramatically improve results," commented Joel Hawthorne, Chief
Executive Officer of GrafTech. "Macro challenges throughout 2014
included a difficult demand environment in our Industrial Materials
segment and market headwinds in our Engineered Solutions segment.
To counter this difficult operating environment, we implemented
three major cost savings programs representing annual savings of
more than $120 million. I am extremely pleased with the progress
our team continues to make on our cost savings programs and our
ability to successfully generate and increase positive cash flow as
we navigate through these industry challenges. We continue to make
difficult but necessary decisions to significantly improve our cost
structure, enhance our global competitiveness and create value for
our stockholders.”
Segment Operating Income Presentation
Update
During the 2014 fourth quarter, the Company revised its
allocation of corporate, research and development and other
expenses based on the new management and operating structure. These
costs were previously allocated to segments and are now being
reported as unallocated expenses. This change is reflected in the
segment operating results, enabling improved visibility to the
operational performance of each segment. Prior periods have been
adjusted to reflect this change. The tables below set forth the
revised segment information. Dollar amounts are in thousands.
For the Three Months For the Twelve Months Ended
December 31, Ended December 31, 2013 2014 2013 2014
Segment adjusted operating income: Industrial Materials
$
14,237
$
21,981
$
76,022
$
63,375
Engineered Solutions
6,780
3,834
26,144
19,348
Corporate, R&D, and Other Expenses
(12,942
)
(11,797
)
(53,393
)
(52,047
) Total adjusted operating income $ 8,075 $ 14,018 $
48,773 $ 30,676
Industrial Materials
Segment
Net sales for Industrial Materials decreased 13 percent to $206
million in the fourth quarter of 2014, compared to $236 million in
the fourth quarter of 2013. The decline in revenue was largely
driven by lower realized graphite electrode pricing and weaker
graphite electrode shipments outside of the United States.
In the fourth quarter of 2014, the Company recorded a $76
million non-cash impairment charge, against the goodwill associated
with the 2010 acquisition of Seadrift. On an after tax basis, the
charge equates to $66 million, or approximately $0.48 per diluted
share. The impairment was a result of the Company's reassessment of
estimated future cash flows and triggered by continued pricing
declines in the needle coke market and a re-evaluation of future
expectations.
The Industrial Materials segment had an operating loss of $(58)
million in the fourth quarter of 2014 as compared to an operating
loss of $(26) million in the same period of the prior year.
Adjusted segment operating income*, which excludes special charges
in both periods, was approximately $22 million in the fourth
quarter of 2014, as compared to approximately $14 million in the
fourth quarter of 2013 and $12 million in the third quarter of
2014.
Q4 Q3 Q4
2013 2014 2014 Industrial Materials net sales:
$ 236,054 $ 208,573 $ 206,099 Industrial Materials adjusted
operating income:
14,237 12,283
21,981 Industrial Materials adjusted operating income margin: 6.0 %
5.9 % 10.7 %
Mr. Hawthorne commented, "In spite of a very challenging global
steel and graphite electrode market, our team increased Industrial
Materials' quarterly adjusted operating income by more than 50
percent year-over-year. We are seeing positive results from the
actions that we have taken to improve the cost structure and
increase efficiency across our global platform. We are confident
GrafTech is best positioned to capitalize on future growth of
electric arc furnace steel demand."
Engineered Solutions
Segment
Net sales for Engineered Solutions decreased 26 percent to $54
million in the fourth quarter of 2014 compared to $72 million in
the fourth quarter of 2013. The decline in revenue was largely
driven by lower demand due to order cancellations for thermal
solutions used in advanced consumer electronic products.
Operating loss for the Engineered Solutions segment was $(7)
million in the fourth quarter of 2014 compared to operating income
of $9 million in the same period in 2013. Adjusted segment
operating income*, which excludes special charges in both periods,
was $4 million in the fourth quarter of 2014 as compared to $7
million in the fourth quarter of 2013 and $1 million in the third
quarter of 2014. Weak demand and order cancellations for the
Company's advanced consumer electronics products adversely impacted
profitability in the quarter, but was offset partially by
aggressive cost reduction efforts, leading to improved
profitability compared to the third quarter of 2014.
Q4 Q3 Q4
2013 2014 2014 Engineered Solutions net sales:
$ 72,448 $ 51,885 $ 53,772 Engineered Solutions adjusted operating
income: 6,780 1,226 3,834 Engineered Solutions adjusted operating
income margin: 9.4 % 2.4 % 7.1 %
Mr. Hawthorne commented, “Market conditions in this segment were
challenging in 2014. We aggressively adapted to short-term
volatility in some of our target high growth markets with cost
initiatives to minimize the adverse impact. We will continue to
leverage our core competencies in graphite material science in our
new Innovation and Technology Center, where we have more than 20
projects in active development that will provide us with
sustainable long-term growth opportunities in diverse high-tech
markets.”
Selling and Administrative and Research
and Development Expense
Total Company selling and administrative expenses and research
and development expenses, which include the above mentioned
corporate expenses, were $41 million for the fourth quarter of
2014, as compared to $25 million in the fourth quarter of 2013.
Overhead expense in the current quarter was negatively impacted by
special charges of $14 million, as compared to the prior year
quarter, which benefited from a pension mark-to-market accounting
gain of $7 million. Excluding special charges in both periods,
overhead expense declined approximately $5 million, or 16 percent,
year-over-year to $27 million in the fourth quarter of 2014 as a
result of the continued effort to reduce costs.
For the full year, total Company selling and administrative
expenses and research and development expenses, which include the
previously mentioned corporate expenses, were $139 million in 2014
and $121 million in 2013. Excluding special charges in both
periods, overhead expense declined $6 million, or five percent,
year-over-year to $123 million in 2014 from $129 million in
2013.
Summary of Key Actions in
2014
- Announced an ongoing Company-wide cost
savings program, which is enabling GrafTech to achieve total annual
cost savings of more than $120 million, approximately $100 million
of which are cash savings (approximately 10 percent of annual
sales) directly improving EBITDA .
- Delivered approximately $50 million in
cash savings in 2014.
- Optimized the graphite electrode
manufacturing platform by rationalizing the two highest cost
manufacturing sites, including significant manufacturing headcount
reductions of approximately 20 percent, which will reduce annual
capital expenditures by approximately $10 million.
- Simplified the operating and management
structure to decentralize the organization, accelerate
decision-making and improve responsiveness to changes in customer
demand.
- Redesigned the Company’s research and
development function to accelerate innovation for new product
development and commercial introduction and maximize the efficiency
of development costs.
- Downsized the Company’s corporate
functions, including headcount and other SG&A reductions, by
approximately 20 percent.
- Rationalized and streamlined
under-performing product lines.
- Increased borrowing capacity by over
$125 million in the past nine months.
- Reduced inventory significantly,
generating approximately $80 million of cash in 2014.
- Continued development of new products,
which contributed approximately 30 percent of the revenue in the
Engineered Solutions segment in 2014 and will provide long-term
value creation for the Company and its stockholders.
Outlook
In its January 19, 2015 report, the International Monetary Fund
reduced its estimate for 2015 global GDP growth to 3.5 percent, 0.3
percentage points lower than its October 2014 forecast. The report
states that lower oil prices will likely boost global growth but
that negative factors, including investment weakness, have reduced
growth expectations in many advanced and emerging economies. The
report goes on to state that the United States is the only major
economy for which growth expectations have been raised.
Steel customer sentiment remains cautiously optimistic in North
America, although there are concerns given high import levels,
reduced demand from the oil and gas and related service sectors,
and the instability of global growth. Customers outside of North
America are generally less optimistic as weakness has been observed
in basic materials sectors.
The 2015 graphite electrode order book continues to be built,
with approximately 60 percent of targeted order volumes confirmed.
Of the orders booked to date, 2015 graphite electrode prices are on
average lower than 2014 year-end pricing. Pricing for products in
the Engineered Solutions segment is also lower. The Company's
previously announced cost savings programs remain on track and are
anticipated to deliver $50 million in cash savings to benefit 2015
EBITDA results, offsetting the impact of lower pricing. While the
Company expects to benefit from falling oil prices in its needle
coke and graphite electrode businesses, lower near-term graphite
electrode operating rates, driven by plans to further reduce
inventory, are expected to largely offset this benefit.
Summary of 2015 Planned
Actions
- Customer focus: delivering
differentiated product quality, service and reliability remains a
core priority and an essential element of GrafTech's product
value;
- Cost leadership: leveraging the
backward integration and capacity optimization of Seadrift;
- Portfolio optimization: rationalizing
under-performing product lines to focus on higher margin businesses
will continue to be a key focus;
- Innovation: developing, collaborating
and executing on new product development by launching a focused
initiative that builds on our past successes;
- Delevering: reducing capital
expenditures, as planned, by approximately $20 million and
inventory by approximately $50 million; and
- Improved liquidity: continuing debt
reduction and liquidity maximization to position the Company for
growth.
As part of these 2015 actions, GrafTech is reviewing plans to
further optimize the production platform for its advanced graphite
materials business and expects a potential charge of up to $10
million in the first half of 2015 related to this review. Current
estimates indicate that the optimization could improve operating
income by $5 million annually.
In summary, the Company’s expectations, excluding the impact of
special charges, are as follows:
- First half 2015 EBITDA* target of $45
million to $55 million;
- First half 2015 operating cash flow of
approximately $40 million to $50 million (after approximately $15
million to $20 million of cash rationalization charges);
- Full year 2015 inventory reduction of
approximately $50 million; and
- Full year 2015 capital expenditures of
approximately $60 million to $70 million.
Mr. Hawthorne concluded, “We continue to focus on improving the
quality of the business model for our stockholders and delivering
exceptional service and quality to our customers in a challenging
and evolving end market. We anticipate that the first quarter will
be the weakest of the year given industry headwinds and usual
seasonality in both segments. First quarter profitability will be
further negatively impacted by the timing of currency fluctuations.
As we move throughout the year, we expect an improvement in
profitability in the second half of 2015."
"Our team has a proven track record of successfully managing
through steel market and graphite electrode industry cycles and has
doubled revenues in Engineered Solutions with new product
introductions. We will not be deterred by this short-term
volatility and will continue to create opportunities to refine our
product lines and leverage our business model and strategic
advantages to drive long-term stockholder value.”
In conjunction with this earnings release, you are invited to
listen to our earnings call being held today at 11:00 a.m. Eastern.
The call will be webcast and available at www.GrafTech.com, in the
investor relations section. The earnings call dial-in number is
877-736-7716 for domestic and 706-501-7465 for international. A
rebroadcast webcast will be available following the call, and for
30 days thereafter, at www.GrafTech.com, in the investor relations
section. GrafTech also makes its complete financial reports that
have been filed with the Securities and Exchange Commission (SEC)
and other information available at www.GrafTech.com. The
information in our website is not part of this release or any
report we file or furnish to the SEC. Upon request, GrafTech will
provide its stockholders with a hard copy of its complete audited
financial statement, free of charge.
GrafTech International is a global company that has been
redefining limits for more than 125 years. We offer innovative
graphite material solutions for our customers in a wide range of
industries and end markets, including steel manufacturing, advanced
energy applications and latest generation electronics. GrafTech
operates 18 principal manufacturing facilities on four continents
and sells products in over 70 countries. Headquartered in
Independence, Ohio, GrafTech employs approximately 2,400 people.
For more information, call 216-676-2000 or visit
www.GrafTech.com.
NOTE ON FORWARD-LOOKING STATEMENTS: This news release and
related discussions may contain forward-looking statements about
such matters as: our outlook for 2015; future or targeted
operational and financial performance; growth prospects and rates;
the markets we serve; future or targeted profitability, cash flow,
liquidity, sales, costs and expenses, tax rates, working capital,
inventory levels, debt levels, capital expenditures, EBITDA, cost
savings and business opportunities and positioning; strategic
plans; stock repurchase plans; cost, inventory and supply chain
management; rationalization and related activities; the impact of
rationalization, product line changes, cost competitiveness and
liquidity initiatives; expected or targeted changes in production
capacity or levels, operating rates or efficiency in our operations
or our competitors' or customers' operations; future prices and
demand for our products; product quality; diversification, new
products, and product improvements and their impact on our
business; the integration or impact of acquired businesses;
investments and acquisitions that we may make in the future;
possible financing or refinancing (including factoring and supply
chain financing) activities; our customers' operations, order
patterns and demand for their products; the impact of customer
bankruptcies; our position in markets we serve; regional and global
economic and industry market conditions, including our expectations
concerning their impact on us and our customers and suppliers;
conditions and changes in the global financial and credit markets;
legal proceedings and antitrust investigations; our liquidity and
capital resources, including our obligations under our senior
subordinated notes that mature in November 2015; tax rates and the
effects of jurisdictional mix; the impact of accounting changes;
and currency exchange and interest rates and changes therein.
We have no duty to update these statements. Our expectations and
targets are not predictions of actual performance and historically
our performance has deviated, often significantly, from our
expectations and targets. Actual future events, circumstances,
performance and trends could differ materially, positively or
negatively, due to various factors, including: adjustments to our
2014 results; actual timing of the filing of our Form 10-K with the
SEC and potential effects of delays in such filing; failure to
achieve cost savings, EBITDA or other estimates; actual outcome of
uncertainties associated with assumptions and estimates used when
applying critical accounting policies and preparing financial
statements; failure to successfully develop and commercialize new
or improved products; adverse changes in cost, inventory or supply
chain management; limitations or delays on capital expenditures;
business interruptions including those caused by weather, natural
disaster, or other causes; delays or changes in, or
non-consummation of proposed investments or acquisitions; failure
to successfully integrate or achieve expected synergies,
performance or returns expected from any completed investments or
acquisitions; inability to protect our intellectual property rights
or infringement of intellectual property rights of others; changes
in market prices of our securities; changes in our ability to
obtain new or refinance existing financing on acceptable terms;
adverse changes in labor relations; adverse developments in legal
proceedings or investigations; non-realization of anticipated
benefits from, or variances in the cost or timing of,
organizational changes, rationalizations and restructurings; loss
of market share or sales due to rationalization, product line
changes, or pricing activities; negative developments relating to
health, safety or environmental compliance, remediation or
liabilities; downturns, production reductions or suspensions, or
other changes in steel, electronics and other markets we or our
customers serve; customer or supplier bankruptcy or insolvency
events; political unrest which adversely impacts us or our
customers' businesses; declines in demand; intensified competition
and price or margin decreases; graphite electrode and needle coke
manufacturing capacity increases; fluctuating market prices for our
products, including adverse differences between actual graphite
electrode prices and spot or announced prices; consolidation of
steel producers; mismatches between manufacturing capacity and
demand; significant changes in our provision for income taxes and
effective income tax rate; changes in the availability or cost of
key inputs, including petroleum-based coke or energy; changes in
interest or currency exchange rates; inflation or deflation;
failure to satisfy conditions to government grants; continuing
uncertainty over fiscal or monetary policies or conditions in the
U.S., Europe, China or elsewhere; changes in fiscal and monetary
policy; a protracted regional or global financial or economic
crisis; and other risks and uncertainties, including those detailed
in our SEC filings, as well as future decisions by us. This news
release does not constitute an offer or solicitation as to any
securities. References to street or analyst earnings estimates mean
those published by First Call.
*Non-GAAP financial measures. See attached reconciliations.
1 Special charges include rationalization and rationalization
related charges, valuation allowances, impairment charges,
mark-to-market pension adjustments, proxy contest expenses,
advanced graphite materials customer bad debt and inventory
charges. See reconciliation tables for further detail.
GRAFTECH INTERNATIONAL LTD. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share
data)
(Unaudited)
As of As of December 31,
December 31, 2013 2014 ASSETS Current
assets: Cash and cash equivalents $ 11,888 $ 17,550
Accounts and notes receivable, net of
allowance for doubtful accounts of $6,718 as of December 31, 2013
and $7,471 as of December 31, 2014
199,566 162,919 Inventories 490,414 382,903 Prepaid expenses and
other current assets 73,790 81,623 Total current
assets 775,658 644,995 Property, plant and equipment
1,588,880 1,500,821 Less: accumulated depreciation 767,895
846,781 Net property, plant and equipment 820,985 654,040
Deferred income taxes 10,334 16,819 Goodwill 496,810 420,129 Other
assets 114,061 97,822 Total assets $ 2,217,848
$ 1,833,805
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities: Accounts payable $ 115,212 $ 86,409 Short-term
debt 1,161 188,104 Accrued income and other taxes 30,687 24,506
Rationalizations 18,421 9,563 Supply chain financing liability
9,455 — Other accrued liabilities 40,939 43,319 Total
current liabilities 215,875 351,901 Long-term
debt 541,593 341,615 Other long-term obligations 97,947 107,566
Deferred income taxes 41,684 28,197 Stockholders’ equity:
Preferred stock, par value $.01, 10,000,000 shares authorized, none
issued — —
Common stock, par value $.01, 225,000,000
shares authorized, 151,929,565 shares issued as of December 31,
2013 and 152,821,011 shares issued as of December 31, 2014
1,519 1,528 Additional paid-in capital 1,820,451 1,825,880
Accumulated other comprehensive loss (292,624 ) (336,524 ) Retained
earnings (deficit) 39,625 (245,751 ) Less: cost of common stock
held in treasury, 16,341,311 shares as of December 31, 2013 and
15,922,729 as of December 31, 2014 (247,190 )
(239,811
) Less: common stock held in employee benefit and compensation
trusts, 87,206 shares as of December 31, 2013 and 80,967 shares as
of December 31, 2014 (1,032 )
(796
) Total stockholders’ equity 1,320,749 1,004,526
Total liabilities and stockholders’ equity $ 2,217,848 $
1,833,805
GRAFTECH INTERNATIONAL LTD. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
INCOME
(Dollars in thousands, except per share
amounts)
(Unaudited)
For the Three Months For the Twelve
Months Ended Ended December 31,
December 31, 2013 2014
2013
2014 Net sales $ 308,502 $ 259,871 $ 1,166,674
$ 1,085,304 Cost of sales 303,551 228,915 1,027,608
993,057 Gross profit 4,951 30,956 139,066 92,247
Research and development 1,563 6,300 10,437 14,844 Selling
and administrative expenses 23,543 35,154 111,043 124,178
Rationalizations 5,563 (136 ) 20,156 11,625 Impairments —
75,650 — 197,220 Operating loss (25,718 )
(86,012 ) (2,570 ) (255,620 ) Other expense, net 945 543
1,698 2,445 Interest expense 8,984 9,834 36,037 37,057 Interest
income (41 ) (73 ) (203 ) (330 ) Loss before provision for income
taxes (35,606 ) (96,316 ) (40,102 ) (294,792 ) Benefit for
income taxes (7,385 ) (12,833 ) (12,843 ) (9,416 ) Net loss $
(28,221 ) $ (83,483 ) $ (27,259 ) $ (285,376 ) Basic loss
per common share: Net loss per share $ (0.21 ) $ (0.61 ) $ (0.20 )
$ (2.10 ) Weighted average common shares outstanding 135,422
136,641 135,067 136,155 Diluted loss income per common
share: Net loss per share $ (0.21 ) $ (0.61 ) $ (0.20 ) $ (2.10 )
Weighted average common shares outstanding 135,422 136,641 135,067
136,155
GRAFTECH INTERNATIONAL LTD. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Dollars in thousands)
(Unaudited)
For the Three Months For the Year
Ended Ended December 31, December 31, 2013
2014 2013 2014 Cash flow from
operating activities: Net loss $ (28,221 ) $ (83,483 ) $ (27,259 )
$ (285,376 )
Adjustments to reconcile net income to
cash provided by operations:
Depreciation and amortization 51,627 26,585 123,397 119,708
Impairment of long-lived assets and goodwill — 75,650 — 197,220
Rationalization related fixed asset write offs 8,010 285 8,010 926
Inventory write-downs — 800 — 19,600 Deferred income tax benefit
(19,806 ) (11,060 ) (22,369 ) (16,003 ) Post-retirement and pension
plan changes (14,012 ) 18,950 (10,544 ) 23,047 Stock-based
compensation 2,097 1,568 8,035 5,577 Interest expense 3,593 4,588
14,052 15,693 Other charges, net 4,146 (1,965 ) 7,162 1,441
Decrease (increase) in working capital* 52,383 8,269 31,980 56,846
Increase in long-term assets and liabilities (8,158 ) (2,173 )
(15,627 ) (17,776 ) Net cash provided by (used in) operating
activities 51,659 38,014 116,837 120,903 Cash flow from investing
activities: Capital expenditures (23,646 ) (15,667 ) (86,344 )
(84,981 ) Insurance recoveries 1,500 — 1,500 2,834 Proceeds from
derivative instruments (738 ) (1,452 ) 114 (2,025 ) Proceeds from
the sale of fixed assets — 963 — 5,042 Other (1,404 ) 178
929 178 Net cash used in investing activities (24,288
) (15,978 ) (83,801 ) (78,952 ) Cash flow from financing
activities: Short-term debt (reductions) borrowings, net (3,183 )
(1,004 ) (7,265 ) (1,021 ) Revolving Facility borrowings 32,000
40,000 166,000 269,000 Revolving Facility reductions (53,000 )
(53,000 ) (171,500 ) (293,000 ) Principal payments on long-term
debt (36 ) (34 ) (225 ) (192 ) Supply chain financing (3,086 ) —
(17,508 ) (9,455 ) Proceeds from exercise of stock options 273 —
448 2,813 Purchase of treasury shares (981 ) (274 ) (1,825 ) (894 )
Refinancing fees and debt issuance costs (39 ) (538 ) (560 ) (3,279
) Other 1,475 (60 ) (5,210 ) 951 Net cash used in
financing activities (26,577 ) (14,910 ) (37,645 ) (35,077 ) Net
increase (decrease) in cash and cash equivalents 794 7,126 (4,609 )
6,874 Effect of exchange rate changes on cash and cash equivalents
(376 ) (454 ) (820 ) (1,212 ) Cash and cash equivalents at
beginning of period 11,470 10,878 17,317
11,888 Cash and cash equivalents at end of period $ 11,888
$ 17,550 $ 11,888 $ 17,550 * Net
change in working capital due to the following components: Change
in current assets: Accounts and notes receivable, net $ 6,395 $
(1,227 ) $ 37,366 $ 28,466 Inventories 26,305 31,451 14,324 77,875
Prepaid expenses and other current assets 10,840 662 (209 ) (14,898
) Decrease in accounts payable and accruals 9,343 (14,777 ) (38,198
) (25,849 ) Rationalizations 4,292 (3,061 ) 18,421 (8,732 )
Increase in interest payable (4,792 ) (4,779 ) 276 (16 )
Decrease (increase) in working capital $ 52,383 $ 8,269
$ 31,980 $ 56,846
GRAFTECH
INTERNATIONAL LTD. AND SUBSIDIARIES
SEGMENT DATA SUMMARY AND
RECONCILIATION
(Dollars in thousands)
(Unaudited)
For the Three Months Ended December
31, September 30, December 31,
For the Year Ended 2013 2014 2014
2013 2014 Net sales: Industrial Materials $
236,054 $ 208,573 $ 206,099 $ 909,448 $ 840,103 Engineered
Solutions 72,448 51,885 53,772 257,226
245,201 Total net sales $ 308,502 $ 260,458 $
259,871 $ 1,166,674 $ 1,085,304 Segment
operating income (loss): Industrial Materials (25,686 ) 5,082
(58,002 ) 20,007 (50,260 ) Engineered Solutions 9,027 (12,445 )
(6,568 ) 28,392 (138,271 ) Corporate, R&D, and Other (9,060 )
(15,688 ) (21,442 ) (50,969 ) (67,089 ) Total segment operating
loss $ (25,719 ) $ (23,051 ) $ (86,012 ) $ (2,570 ) $ (255,620 )
Reconciling Items: Rationalizations - Industrial
Materials 4,746 4,725 (161 ) 17,882 5,510 Rationalizations -
Engineered Solutions 458 3,249 39 458 3,259 Rationalizations -
Corporate, R&D, and Other 358 2,870 (14 ) 1,816 2,856
Impairments - Industrial Materials — — 75,650 — 75,650 Impairments
- Engineered Solutions — — — — 121,570
Total rationalizations and impairments 5,562 10,844 75,514
20,156 208,845 Rationalization related Industrial Materials
(recorded in Cost of sales) 39,360 2,456 1,017 42,316 28,901
Industrial Materials (recorded in Selling and administrative) 59 20
(8 ) 59 89 Engineered Solutions (recorded in Cost of sales) 3,170
5,593 1,039 3,170 18,637 Engineered Solutions (recorded in Selling
and administrative) — — 121 — 121 Corporate, R&D and Other
(recorded in Selling and
administrative)
— 89 3,345 — 3,434 Total
rationalization related 42,589 8,158 5,514 45,545 51,182
Mark-to-market Pension Adjustment
Industrial Materials (4,242 ) — 3,485 (4,242 ) 3,485 Engineered
Solutions (5,875 ) — 9,203 (5,876 ) 9,203 Corporate, R&D, and
Other (4,240 ) — 6,314 (4,240 ) 6,314
Total Mark-to-market Pension
Adjustment
(14,357 ) — 19,002 (14,358 ) 19,002 Proxy contest expenses -
Corporate, R&D, and Other — — — — 2,438 Advanced graphite
materials customer bad debt, inventory charge — 4,829
— — 4,829 Total other expenses — 4,829 — —
7,267
Segment
adjusted operating income: Industrial Materials 14,237 12,283
21,981 76,022 63,375 Engineered Solutions 6,780 1,226 3,834 26,144
19,348 Corporate, R&D, and Other (12,942 ) (12,729 ) (11,797 )
(53,393 ) (52,047 ) Total adjusted operating income $ 8,075 $ 780 $
14,018 $ 48,773 $ 30,676 Adjusted operating income margin:
Industrial Materials 6.0 % 5.9 % 10.7 % 8.4 % 7.5 % Engineered
Solutions 9.4 % 2.4 % 7.1 % 10.2 % 7.9 % Total adjusted operating
income margin 2.6 % 0.3 % 5.4 % 4.2 %
2.8 %
NOTE ON RECONCILIATION OF OPERATING INCOME DATA: Adjusted
segment operating income is a non-GAAP financial measure that
GrafTech calculates according to the schedule above, using GAAP
amounts from the Consolidated Financial Statements. GrafTech
believes that the excluded items are not primarily related to core
operational activities. GrafTech believes that adjusted segment
operating income is generally viewed as providing useful
information regarding a segment's operating profitability.
Management uses adjusted segment operating income as well as other
financial measures in connection with its decision-making
activities. Adjusted segment operating income should not be
considered in isolation or as a substitute for segment operating
income or other consolidated income data prepared in accordance
with GAAP. GrafTech's method for calculating adjusted segment
operating income may not be comparable to methods used by other
companies.
GRAFTECH INTERNATIONAL LTD. AND
SUBSIDIARIES
RECONCILIATION OF OTHER NON-GAAP
FINANCIAL MEASURES
(Dollars in thousands)
(Unaudited)
EBITDA
Reconciliation
For the Three Months Ended For the
Year Ended December 31, December 31, First
Half Target 2013 2014 2013
2014 2015 EBITDA $ 32,582
$ 36,969 $ 143,844 $
121,429 $45,000 - $55,000
Adjustments
Depreciation
and amortization
(24,504 ) (22,952 ) (95,071 ) (90,751 ) (44,000) Rationalization
related
depreciation
(27,123 ) (3,544 ) (28,326 ) (28,957 ) (4,000) Rationalizations
(5,563 ) 136 (20,156 ) (11,626 ) (7,000) Impairments — (75,650 ) —
(197,220 ) — Rationalizations related charges (15,469 ) (1,970 )
(17,220 ) (22,227 ) (2,000) Advanced graphite materials customer
bad debt and inventory charge — — — (4,829 ) — Mark-to-market
adjustment 14,359 (19,001 ) 14,359 (19,001 ) — Proxy contest
expenses — — — (2,438 ) — Operating income
(25,718 ) (86,012 ) (2,570 ) (255,620 ) (12,000) - (2,000) Other
(expense) income, net (945 ) (543 ) (1,698 ) (2,445 ) (2,000)
Interest expense (8,984 ) (9,834 ) (36,037 ) (37,057 ) (18,000)
Interest income 41 73 203 330 — Income taxes 7,385 12,833
12,843 9,416 (5,000)
Net loss $
(28,221 ) $ (83,483 ) $
(27,259 ) $ (285,376 )
$(37,000) - $(27,000)
NOTE ON EBITDA RECONCILIATION: EBITDA and adjusted EBITDA are
non-GAAP financial measures that GrafTech currently calculates
according to the schedule above, using GAAP amounts from the
Consolidated Financial Statements. GrafTech believes that EBITDA
and adjusted EBITDA measures are generally accepted as providing
useful information regarding a Company’s ability to incur and
service debt. GrafTech also believes that EBITDA and adjusted
EBITDA measures provide useful information about the productivity
and cash generation potential of its ongoing businesses. Management
uses EBITDA and adjusted EBITDA measures as well as other financial
measures in connection with its decision-making activities. EBITDA
and adjusted EBITDA measures should not be considered in isolation
or as a substitute for net income (loss), cash flows from
operations or other consolidated income or cash flow data prepared
in accordance with GAAP. GrafTech’s method for calculating EBITDA
and adjusted EBITDA measures may not be comparable to methods used
by other companies and is not the same as the method for
calculating EBITDA and adjusted EBITDA measures under its senior
secured revolving credit facility. The adjusted EBITDA is a
non-GAAP financial measure that further excludes pension
mark-to-market adjustments from the GAAP net income. GAAP cost of
sales and operating expenses include pension and benefit related
charges based on projected discount rate and an estimated return on
plan assets as well as a fourth quarter mark-to-market adjustment
entry to reflect the actual discount rate and actual return on plan
assets for the year. The non-GAAP adjusted EBITDA excludes the
pension mark-to-market adjustment to provide for more meaningful
quarterly and annual comparisons. The Company reflects its annual
pension mark-to-market adjustment in the fourth quarter of 2014,
which this year also includes the adoption of recently updated
mortality tables in accordance with revised actuarial
estimates.
GRAFTECH INTERNATIONAL LTD. AND
SUBSIDIARIES
RECONCILIATION OF OTHER NON-GAAP
FINANCIAL MEASURES
(Dollars in thousands)
(Unaudited)
Adjusted Net
Income and Earnings Per Share Reconciliation
For the Three Months Ended
For the Three Months Ended December 31, 2013
December 31, 2014 Income (Loss) EPS Income
(Loss) EPS Total Company Net loss $ (28,221 ) $
(0.21 ) $ (83,483 ) $ (0.61 ) Rationalizations, net of tax 3,238
0.02 (113 ) — Impairment, net of tax — — 66,067 0.48
Rationalization related, net of tax 29,998 0.23 3,554 0.03
Valuation allowance — — 10,055 0.07
Mark-to-market pension adjustment, net of
tax
(9,094 ) (0.07 ) 11,842 0.09 Adjusted net (loss)
income $ (4,079 ) $ (0.03 ) $ 7,922 $ 0.06
For the Year Ended For the Year Ended
December 31, 2013 December 31, 2014 Income
(Loss) EPS Income (Loss) EPS Total
Company Net loss $ (27,259 ) $ (0.20 ) $ (285,376 ) $ (2.10 )
Rationalizations, net of tax 13,945 0.10 7,646 0.05 Impairment, net
of tax — — 142,633 1.05 Rationalization related, net of tax 32,659
0.25 33,922 0.25 Valuation allowance — — 75,771 0.56
Advanced graphite materials customer bad
debt and inventory charge, net of tax
— — 3,062 0.02 Proxy contest expenses, net of tax — — 1,521 0.01
Mark-to-market pension adjustment, net of
tax
(9,094 ) (0.07 ) 11,842 0.09 Adjusted net income
(loss) $ 10,251 $ 0.08 $ (8,979 ) $ (0.07 )
NOTE ON RECONCILIATION OF EARNINGS DATA: Adjusted net income and
adjusted earnings per share are non-GAAP financial measures that
GrafTech calculates according to the schedule above, using GAAP
amounts. GrafTech believes that the excluded items are not
primarily related to core operational activities. GrafTech believes
that adjusted net income and adjusted earnings per share are
generally viewed as providing useful information regarding a
company's operating profitability. Management uses adjusted net
income and adjusted earnings per share as well as other financial
measures in connection with its decision-making activities.
Adjusted net income and adjusted earnings per share should not be
considered in isolation or as a substitute for net income or other
consolidated income data prepared in accordance with GAAP.
GrafTech's method for calculating adjusted net income and adjusted
earnings per share may not be comparable to methods used by other
companies.
GRAFTECH INTERNATIONAL LTD. AND
SUBSIDIARIES
RECONCILIATION OF OTHER NON-GAAP
FINANCIAL MEASURES
(Dollars in thousands)
(Unaudited)
Net Debt
Reconciliation
As of As of December 31, 2013
December 31, 2014 Long-term debt $ 541,593 $ 341,615
Short-term debt 1,161 188,104 Supply chain financing 9,455 —
Total debt 552,209 529,719 Less: Cash and cash equivalents 11,888
17,550
Net Debt $ 540,321
$ 512,169
NOTE ON NET DEBT RECONCILIATION: Net debt is a non-GAAP
financial measure that GrafTech calculates according to the
schedule above, using GAAP amounts from the Consolidated Financial
Statements. GrafTech believes that net debt is generally accepted
as providing useful information regarding a company’s indebtedness
and that net debt provides meaningful information to investors to
assist them to analyze leverage. Management uses net debt as well
as other financial measures in connection with its decision-making
activities. Net debt should not be considered in isolation or as a
substitute for total debt or total debt and other long-term
obligations calculated in accordance with GAAP. GrafTech’s method
for calculating net debt may not be comparable to methods used by
other companies and is not the same as the method for calculating
net debt under its senior secured revolving credit facility or
other debt instruments.
GTI-G
GrafTech International Ltd.Kelly Taylor, 216-676-2000Director,
Investor Relations